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Rafferty Capital Markets analyst Richard Bove on Wednesday cut his rating on Citigroup all the way to "buy" from "sell," while lowering his price target for the shares to $44.50 from $57.00. Bove in a note to clients wrote that previous "buy" recommendation was based on Citigroup trading below tangible book value, but that "Citigroup's book value can [no longer] be trusted," because of the company's exposure to troubled emerging market economies.

"When a currency problem arises in multiple countries worldwide that forces dramatic changes in interest rates... banks suffer. Business in those countries weakens. Citigroup is the only U.S. based bank that is vulnerable to those trends," Bove wrote.

Citi is indeed unique among large U.S. banks, because most of its earnings are derived from business being done outside the United States. For Citi's core unit Citicorp, 57% of fourth-quarter adjusted revenue came from outside the United States, excluding credit and debit valuation adjustments (CVA and DVA) and minority investments. On a similar basis, also excluding a credit card divestiture, 69% of Citicorp's fourth-quarter earnings came from outside the U.S.

KBW analyst Fred Cannon in a client note on Friday wrote that Citi's exposure to Argentina was "manageable," and estimated that even in the worst-case scenario of a full write-down of the bank's business in that country, the hit to Citi's tangible book value would only be 45 cents a share. That's less than 1% of Citi's reported Dec. 30 tangible book value of $55.38.

But Bove wrote, "The issues arising in a number of foreign nations suggest that loan quality at Citigroup may erode. The bank was the only one I follow that showed weaker loan quality in the fourth quarter and the problems here may accelerate."

These troubled emerging economies include Turkey, whose central bank on Tuesday raised its overnight lending rate to 12% from 7.75%, in an effort to defend its currency. Other troubled economies cited by Bove in a separate report Tuesday included South Africa, Brazil and Indonesia.

Another "Taper Day"

The broad indices all ended with significant losses and the KBW Bank Index(I:BKX) was down 1.3% to 67.65, with all but one of the 24 index components ending lower. after the Federal Open Market Committee -- as expected by most economists -- announced a further reduction in the Federal Reserve's purchases of long-term bonds.

After completing its two-day policy meeting, the FOMC released its statement, which included some important changes from previous statements which could have spooked stock investors on the prospect of rising interest rates. The FOMC said data it had received since its December meeting indicated "that growth in economic activity picked up in recent quarters," which was an change from the "moderate pace" of growth described in previous statements.

The FOMC also said that despite a recent slowdown in some housing numbers, household spending and spending by business had "advanced more quickly in recent months."

The committee said the Federal Reserve will lower its monthly net purchases of long-term agency mortgage-backed securities to $30 billion from $35 billion, while also lowering its purchases of long-term U.S. Treasury bonds to $35 billion from $45 billion, for total monthly bond purchases of $65 billion beginning in February.

The long anticipated "tapering" of the central bank's "QE3" bond purchases began in December, when the FOMC said January purchases would decline to a total of $75 billion from $85 billion. The Fed had maintained the monthly pace of $85 billion in bond purchases since September 2012.

The media remains fixated on the Fed's monthly bond purchases, and long-term interest rates are expected to rise as a result of the tapering, but the central bank's main policy tool is actually the short-term federal funds rate, which has been locked in a historically low range of zero to 0.25% since late 2008.

The FOMC on Wednesday said it had "reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens." The committee also repeated its past statement that the federal funds rate was likely to remain in its current range at least as long as the U.S. unemployment rate remains above 6.5%.

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